Microsoft Considered Shutting Down Xbox Before Major Studio Acquisitions
Microsoft’s gaming division faced a pivotal moment in 2021 when CEO Satya Nadella weighed the possibility of shutting down Xbox. Instead, Nadella made a high-stakes decision to double down on gaming by acquiring two major developers: ZeniMax Media, the parent company of Bethesda, for $7 billion in 2021, and Activision Blizzard for $75.4 billion in 2023.
The acquisitions aimed to bolster Microsoft’s Game Pass subscription service, which emphasizes access to a vast library of games rather than traditional ownership. The move was seen as a bid to transform gaming into a subscription-driven model, similar to how streaming has reshaped entertainment.
However, a recent report by The Information suggests Game Pass has not met Microsoft’s ambitious expectations. The company initially targeted 100 million subscribers by 2030, with a projected annual growth rate of 40%. Despite the high-profile acquisitions, Microsoft fell short of these goals for two consecutive years, leading to the removal of Game Pass targets from Nadella’s compensation plan in 2023.
Investors have expressed concerns about Game Pass’s reliance on blockbuster releases, such as Call of Duty, and its inability to secure widespread adoption of Microsoft’s Azure cloud services among game developers. Even Activision Blizzard, now owned by Microsoft, continues to rely on cloud infrastructure from competitors like Google and Amazon.
While Microsoft touts record revenues for Game Pass, skepticism remains among customers who are wary of a subscription-only model that leaves them without tangible ownership of their games.
Despite these challenges, the company’s strategic priorities have shifted. Microsoft is now focusing heavily on artificial intelligence, which has become a central driver of its business growth. According to Denny Fish, an investor at Janus Henderson, Microsoft’s investments in AI and data center infrastructure are of greater importance to shareholders than the performance of its gaming division.
The shift in focus suggests that while gaming remains a key part of Microsoft’s strategy, the company’s broader ambitions in AI and cloud technology are taking precedence, reducing the overall impact of Activision’s performance on Microsoft’s valuation.
[IMAGE – Microsoft Revenue Breakdown]
